Update

Let’s take a look at the balance of the week.

We’ll see the Fed’s Beige Book tomorrow (1/12). This will reflect Bernanke’s recent commentary that improvement is noted here and there.

Thur (1/13) we’ll see the PPI for Dec, then CPI on Fri (1/14). Both of these numbers have acquired market-moving potential because of the Fed’s aggressive expansion of the money supply. If either or both are to print numbers say double expectations, the world mkt will assume the Fed’s got itself in a tight spot and yields will spike. The odds for such a print are low, but this does accurately reflect the tension in the marketplace.

Also Fri (1/14) we will have Dec Retail Sales. Estimates have been shaved a tad due to extreme weather, the end of the reporting period. Still, past few months we have predicted that consumer activity would surprise to the side of vigor. This has been the result, especially for discretionary purchases. We look for more of the same, ongoing.

Finally, the media is saturated with news of distress, EU credits. What’s this mean for the US? Not much.

There will be a nick in US exports given the recent weakness of the Euro to the $(a Euro buys fewer $’s). But major contagion? No. Our banks have very little exposure to the EU periphery credits. The real wild card as we noted earlier is a collapse of the currency. That’s something else.

Background: Nothing good can come from paranoia. But that is just what birthed the EU - the dread of US competitiveness. Sovereignty was ditched throughout Europe. There was a great leveling. Terrified, all rushed together, the weak and the strong, to row one boat. Weaker members inevitably slack on the oars. The ship is now off course and perhaps, bound to run aground.

Solutions to the current crisis were being delivered piecemeal, without recognition for example that Greece, Ireland and Portugal are insolvent. The stubborn ECB had refused to do much. But today Japan eclipsed the ECB and offered to buy a good hunk of the bonds being readied to support EU periphery credits. That helped. So did China’s promise to buy Spanish debt. And so did rumors today of increased ECB purchases of Portugese debt.

The lesser credits of Europe the poor devils got themselves in a trap - borrowing heavily, pre-crisis, in hopes of a continuum. US Democrats, always made out to be darlings in the European press were trusted by this bunch - those same Democrats who sowed the seeds to tank the world markets. Now we’re alright, or getting there, but these credits never recovered. Investors are selling their bonds as they can’t seem to pay their bills. And as investors do that, these credits’ debt bills soar even more as interest rates climb.

World creditors now demand 7% to loan the Portugese 10 year money (actually 7.24% at one point yesterday, triggering ECB purchases which put the rate back down closer to 7%), vs the already high 5.5% that Greece and Ireland are paying the EU emergency fund, vs 3.51% for the UK Gilt 10yr and 3.35% for the US. And if Portugal goes, and she may as she’s not growing fast enough to service her debt, then Spain is right behind, or such is the perception. Makes sense - Spanish banks are one of the largest holders of Portugese debt.

These folks should have listened to Thatcher.

Robert Craven